The evolution of ethical investment

The concept of ethical investment appeared in the US in the 1980s, when investors began screening investments according to environmental and socio-political criteria.Ethical screening means inclusion or exclusion of stock and shares in investment portfolios on ethical, social or environmental grounds. Concepts such as shareholder influence and cause-based investing became part of investment jargon, and years of research proved that socially concerned companies outperformed those who did not take this approach. By the end of the 1980s, SRI was global and investors world-wide took ethical criteria into account to avoid investing in companies whose values conflicted with their own. In general, SRI should combine investors’ objectives with their commitment to social concerns, but as those are different for each individual, there is not yet a precise definition of SRI. The term ‘ethical investment’ is commonly used to describe the purchase of stocks and shares that have been selected by combining ethical screening with conventional financial criteria. While for some this screening is based on political, social or religious concerns, the most common approach is environmental. “Eco-efficiency” is another increasingly common concept, which could be defined as the capacity to get shareholder value with lower levels of environmental risk. This practice is growing in Europe, with companies providing environmental reports more often and local authorities projecting a greater concern.After the climate change agreement in Kyoto, issues such as reducing carbon dioxide emissions have increased the need for industrial restructuring. However, the cost of reducing these emissions is lower than predicted and sustainable companies are now offering shareholders greater value.Since the ultimate objective of investment is still the highest return, sustainable companies’ currently impressive results could lead to a greater convergence of financial markets and socially responsible criteria. Paula Garrido